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July 17, 2014

Wirehouse Bleeding of HNW Assets Stabilizes: Cerulli

For the first time in recent memory, wirehouses are retaining share of assets, including those of high-net-worth investors

The average wirehouse delivers 11 client services.

After suffering near-constant post-crisis turmoil and three years of losing both advisors and assets to other channels, new research from Cerulli Associates shows wirehouses have begun to stabilize while still controlling industry-leading asset share.

“While the wirehouses are not yet winning new clients, they are for the first time in recent memory retaining share of assets, including those of high-net-worth investors,” said Kenton Shirk, associate director at Cerulli, in a statement. “Wirehouse firms have reshaped their business around serving the industry's largest and most productive advisors. These firms have positioned themselves as delivering the scope and scale of a global financial institution to affluent investors.”

While wirehouses’ market share loss of HNW investors continues, Cerulli says the pace of that loss has stabilized in the past few years. In 2007, the four New York wirehouses controlled more than half (53%) of high-net-worth assets, but by 2009 that share had plummeted to 44%, according to Cerulli’s research. The report shows the market share loss of HNW investors dropping from 43% in 2010 to 42% in 2011 to 41% in 2012, and Cerulli projects these firms to drop less than one percentage point of HNW share in 2013.

“It appears that the wirehouses’ strategy of focusing on the largest advisors has begun to bear fruit as their market share stabilizes,” Shirk adds in the statment. “The four wirehouses already boast the industry’s most significant assets under management per advisor.”

As measured by assets under management per advisor, wirehouse advisors are 159% more productive than the average, according to Cerulli. Cerulli notes that a wirehouse practice delivers 11 different services to its clientele on average, more than the industry average of less than 10 and the highest of any channel.

Merrill Lynch advisors had the highest average yearly production, at $1.056 million in the first quarter, ThinkAdvisor reported.

Clients of wirehouse advisors are the most likely of those serviced by any channel to receive estate planning, elder care planning, cash management and charitable giving counsel from their advisor — services that require extensive provider support, infrastructure and scale.

“Wirehouses have sought to be smaller, more productive and more profitable firms,” Cerulli reports in The Cerulli Edge: Advisor Edition for the third quarter. “They reduce overhead through efforts such as eliminating branch managers and administrative staff and reducing training class attendance. The wirehouses focus on corner-office advisors by retaining top producers with long-term retention contracts, allowing mid-tier advisors to leave, and terminating less productive advisors. These efforts have helped the wires improve profit margins.”

Cerulli also suggests strategies in its advisor edition for wirehouses to leverage their resources and grow their market share — touting the best options for these firms to consider as selectively recruiting existing advisory practices and capitalizing on their scale to create centralized units that embrace technology.

The report also advocates for “the greater adoption of models that encourage employee advisors to create ongoing, goal-based client connections, with a focus on serving as relationship managers delivering customized advice formulated by central resources.

"While industry insiders may perceive some tarnish on the wirehouse brands, for the average consumer these firms remain the pillars of the segment,” Cerulli reported. “Cerulli believes wirehouse firms could benefit by supplementing traditional “eat what you kill” advisors with in-house colleagues largely reliant on internal referrals and corporate advertising to generate initial client contact. This structure would not only broaden the addressable market of these firms at a reasonable cost, but also present a robust training ground for advisors interested in traditional branch-based roles in the future."